Falling on hard times financially can also lead to falling behind on your taxes. When your tax debt becomes extremely delinquent, the IRS may issue a garnishment on your wages. This garnishment, or levy, allows the IRS to take part of your wages each pay period. A garnishment will continue until you: A. make other arrangements to pay off your tax debt; B. your debt has been paid in full; or C. the levy has been released. Overwhelmed by the thought of losing your wages, you may wonder if filing for bankruptcy will relieve you from an IRS garnishment.
Filing for bankruptcy can in fact offer some relief from the stress of an IRS garnishment. Once you file bankruptcy, a court ordered automatic stay will immediately go into effect. This stay will stop any type of debt collection, including garnishments and seizures, for the duration of the bankruptcy case. However, since bankruptcy will not get rid of most tax debts, how your garnishment is affected after the case is over will depend on which type of bankruptcy is filed: Chapter 7 or Chapter 13.
In a Chapter 7 bankruptcy filing, all of your dischargeable debts will be wiped out. Since most tax debts are not dischargeable, they will remain. The IRS garnishment will, however, be temporarily halted due to the automatic stay while your bankruptcy case is processed. When your case is over, you will still owe on your tax debt. For this reason, while Chapter 7 can offer a window of relief, it does not offer a long-term solution to the situation.
A Chapter 13 bankruptcy can offer a more lasting solution if you’re facing an IRS levy. With a Chapter 13 bankruptcy filing, you are restructuring your debts into a more feasible repayment plan. Your taxes will still need to be repaid, but they will be incorporated into your payment plan and your garnishment will stop. If you pay off the full amount of your tax debt through Chapter 13, you will not owe anything to the IRS when your case is over.
Although all of your tax debts may not be dissolved through bankruptcy, it can be a good option to relieve much the stress and financial hardship that result when the IRS garnishes your wages. The temporary relief that is offered through the automatic stay can give you a chance to get back on your feet financially and reorganize. Furthermore, the opportunity to restructure your debts through filing Chapter 13 can help lessen your monthly burden and get your finances back on track.
If you’re facing significant financial stress due to an IRS garnishment, it is important to seek legal advice from an experienced bankruptcy attorney. They can guide you through your options and help find the best solution for your specific case. In Jacksonville, Florida, contact the law offices of Parker & DuFresne at 904-733-7766 to learn more.